Correlation Between Adaro Energy and Peabody Energy

Can any of the company-specific risk be diversified away by investing in both Adaro Energy and Peabody Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Adaro Energy and Peabody Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adaro Energy Tbk and Peabody Energy Corp, you can compare the effects of market volatilities on Adaro Energy and Peabody Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Adaro Energy with a short position of Peabody Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaro Energy and Peabody Energy.

Diversification Opportunities for Adaro Energy and Peabody Energy

0.09

Correlation Coefficient

Adaro Energy  Peabody Energy

Significant diversification

The 3 months correlation between Adaro and Peabody is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Adaro Energy Tbk and Peabody Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy Corp and Adaro Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Adaro Energy Tbk are associated (or correlated) with Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy Corp has no effect on the direction of Adaro Energy i.e., Adaro Energy and Peabody Energy go up and down completely randomly.

Pair Corralation between Adaro Energy and Peabody Energy

Assuming the 90 days horizon Adaro Energy Tbk is expected to under-perform the Peabody Energy. In addition to that, Adaro Energy is 1.77 times more volatile than Peabody Energy Corp. It trades about -0.03 of its total potential returns per unit of risk. Peabody Energy Corp is currently generating about 0.06 per unit of volatility. If you would invest  2,152  in Peabody Energy Corp on September 5, 2024 and sell it today you would earn a total of  202.00  from holding Peabody Energy Corp or generate 9.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Adaro Energy Tbk  vs.  Peabody Energy Corp

Adaro Energy Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adaro Energy Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Peabody Energy Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Peabody Energy Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Peabody Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Adaro Energy and Peabody Energy

The main advantage of trading using opposite Adaro Energy and Peabody Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adaro Energy position performs unexpectedly, Peabody Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Peabody Energy will offset losses from the drop in Peabody Energy's long position.

The idea behind Adaro Energy Tbk and Peabody Energy Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.